Tuesday, July 8, 2014

If you’re ever on a game show and they ask you what your most important financial number is, make sure to answer, “my credit score.”

This 3-digit number is responsible for much of what happens in you financial life. It is your credit score that determines how high or low the interest rates you pay are and whether you qualify for credit in the first place. If you’re renting a place to live, your score can determine how much of a security deposit you pay, and the rate car insurance providers will give you.

Of course, it’s hard to work on getting your credit score as high as possible without the facts, so consider these 10 factors that affect your score.

1. Payment History

According to FICO’s “What’s In Your Score,” your payment history determines a whopping 35 percent of your credit score. It makes perfect sense when you think about it. Would you loan someone with a poor payment history your money? Probably not, unless the person is a really persuasive relative or good friend.

Payment history includes a wide variety of account types, including major credit cards, retail accounts, installment loans and mortgage loans.

If you pay your bills on time and never miss payments, you will score high on payment history. On the other hand, if you have late and missing payments or worse, charge-offs, which indicate that debt collectors gave up on you paying your loans, your payment history score is likely to be low.

2. Amount of Debt You Owe

Thirty percent of your credit score is determined by the amount you currently owe, and if you’re carrying large amounts of debt. How much is too much? Lenders have formulas (read: debt to income ratio) to determine how much debt is too much for you.

If you owe a lot of money on several accounts, including being maxed out on some, this signals to lenders that you are at risk for default. Then again, if you owe small amounts on credit cards and have a substantial amount of unused credit (a low credit utilization rate), that will positively affect your credit score.

Some say that having a lot of unused credit could possibly be a risk. After all, what’s to say you won’t go on a shopping spree and load on the debt tomorrow? Again, there are a lot of things that factor into your score, but if you’re wondering, StackExchange has an excellent answer to this question. How bad is it to have a lot of credit available but not used?

3. Length of Credit History

Credit mastery is like any skill. The longer your credit history, the likelier it is you’re “good at” credit. Fifteen percent of your credit score is determined by the length of time you’ve had credit. This means that holding on to your first credit card, no matter how small the limit, is a good idea.

Ten percent of your credit score is based on the type of credit you have in use. FICO looks at the various accounts you have and determines if it is a well-balanced mix. Those with the highest scores don’t just have credit cards, but finance company accounts, mortgage loans and installment accounts, and so on.

In addition, creditors consider the number of accounts you have in use. A lot of accounts in use can have a negative impact on your score, whereas just a handful of credit cards used will likely increase your credit score. Do keep in mind that while you don’t want an overabundance of accounts in use at one time, it’s better to use part of the credit on several cards than to max out one card.

Credit.com has a great article here on how to improve your credit score by using different types of credit.

5. Many New Credit Accounts

A final 10 percent of your score is affected each time you take on more debt. While one new small account is unlikely to make much of a difference in your score, several new accounts in a short period of time will. New accounts generate inquiries, which are recorded on your credit report and are considered negatives.

6. Maxed Out Credit Cards

Not exactly the same as having a lot of debt, having a lot of maxed out credit cards shows that your credit utilization is high. Having a high percentage of your credit limit used up doesn’t show potential lenders that you’re good with credit, just that you’re good at having a lot of debt and not paying it off. The ideal “low” credit utilization is no more than 20% of your available credit across all accounts.

7. Accounts Sent to Collections

If a debt you owe is sent to a third-party debt collector in order to attempt to collect payment from you (and it’s on your credit report) your credit score will plummet. It is much better for your credit score to settle debt before it is sent to collections.

If the debt remains unpaid even after it’s sent to collections and the court gets involved and a judgment is made, this will sink your credit score even more. Paid judgments are less harmful to your credit than unpaid ones.

8. Loan Defaults

Like a credit card charge-off, a loan default shows that you did not meet your financial obligations, which indicates that you are a credit risk. Lenders don’t like taking risks!

9. Home Foreclosure

Falling behind in your mortgage payments and then foreclosing is especially damaging. And good luck getting approved for another mortgage in the future.

10. Bankruptcy

Of all factors that affect your credit score, bankruptcy is the most damaging. Not only is it one of the most negative things that can happen to an individual, bankruptcy sticks to your credit report for 7-10 years. This makes any potential credit move you want to make during that time difficult, if not impossible. Considering the far-reaching, negative consequences of this financial solution, it makes sense to seek alternatives whenever possible, such as debt settlement or personal loans from friends and family.

Thursday, July 3, 2014

It’s hard to believe that cell phones have now been around for more than 40 years. Three decades later, cell phones are an integral part of people’s lives. In fact, 91 percent of Americans own a cell phone. With so many people using these devices, cellular companies are raking in the dough. Many Americans become loyal customers of specific carriers due to habit, because they like a particular phone offered, or because of excellent customer service.

Yet, people often grumble about the reliability, cost, or plan availability of their particular provider. The task of finding a new carrier can be daunting. According to the research, Verizon Wireless is the best overall carrier, followed by AT&T , and then T-Mobile. The article below includes a summary of the top five ranked carriers.

1. Verizon Wireless

Verizon takes the number one spot with an overall ranking of 8.58/10. The company covers 98 percent of Americans. The carrier also has 100 percent coverage in urban areas, 95 percent in rural areas, offers 4G LTE in 506 markets, and offers superb customer service. Verizon’s contracts and the number of days allowed to return a phone are similar to other carriers. Although AT&T has slightly higher 4G download speeds, Verizon earned overall better rankings. The main issue with Verizon is the cost of the plans, which can get very expensive. However, when one weighs the many benefits of Verizon, the cost seems somewhat less important.

2. AT&T

AT&T ranks just below Verizon with an overall ranking of 8.5/10. As mentioned before, AT&T has the fastest 4G LTE speeds, and it also offers many different phones. However, while 4G LTE speeds are excellent, the coverage only includes 424 markets. In addition, while AT&T offers many plans, those plans can be expensive. Further, the company’s network is not as strong as Verizon’s, and rural coverage can be especially lacking, with only 75 percent of rural areas covered. AT&T earned an 85 for customer service, which amounts to a steady B compared to Verizon’s A+.

3. T-Mobile

Coming in at number three is T-Mobile — which you might recognize from the awesomely hilarious Bill Hader commercials that have launched over the past few months. T-Mobile received an 8.38/10 overall ranking because of the carrier’s unlimited data plans and affordable prices. However, the coverage is not as strong as Verizon or AT&T offers, with only 75 percent of urban areas and 50 percent of rural areas covered. T-Mobile only has 143 4G LTE markets, but the download speeds are just a hair behind Verizon. Another negative for the carrier is the ranking it received on customer service, which came in at only 45 percent. Still, T-Mobile is an affordable carrier if it is available in your location.

4. Sprint

With an overall rating of 7.75/10, a low customer service score (50 percent), and spotty coverage (65 percent in urban areas and 55 percent in rural areas), Sprint certainly isn’t on the same playing field as Verizon and AT&T. Still, it offers unlimited data as well as international calling. Sprint also features many different phones with various capabilities. Sprint family plans are also popular, and although the network is not always solid, Sprint is offered nationwide. This is particularly effective for people who travel frequently or families with college-age children.

For the past few months, the company offered a program called Sprint One Up, but that ended January 9. The program used to allow customers who purchased an eligible smartphone while agreeing to pay 24 monthly installments for the device to trade the smartphone in after 12 consecutive months of payment. Customers would then be given a new smartphone and a new contract. Although the plan has ended, if Sprint brings this plan back, this deal could greatly increase its customer base.

5. MetroPCS

MetroPCS’s excellent customer service helped earn it a 7.53/10 ranking. The company received a 90 percent for customer service, second only to Verizon. MetroPCS also happens to be a prepaid cell phone carrier, which equals no contracts. After the initial price of the phone, the monthly plans are affordable, starting at $40 per month. MetroPCS also offers unlimited text, data, and talk on a 4G network, as well as discounts when families have multiple phones on one account. The company does have limited coverage, including 75 percent of urban areas and 50 percent of rural areas. The carrier is now owned by T-Mobile and runs on its network.